BIR Ruling [DA-379-03]

October 20, 2003 BIR RULING [DA-379-03] 57; 24-00 Philippine National Construction Corp. EDSA cor. Reliance Street Mandaluyong City Attention: Ms. Miriam M. Pasetes Chief Financial Officer Gentlemen : This refers to your letter dated September 25, 2002, requesting for a ruling on whether PNCC can withhold the one percent (1%) creditable withholding tax from the suppliers instead of withholding it from the subcontractor with whom it entered into a contract. You stated in your letter the pertinent portion of which is quoted as follows: "On September 15, 1998, PNCC was designated as a withholding agent under BIR Revenue Regulations No. 12-94. Based on said Revenue Regulations and Revenue Regulations No. 28-94, PNCC implemented the said BIR rulings by withholding one percent (1%) tax on purchases of goods and services from subcontractors and suppliers with whom PNCC regularly does business. . . . Our subcontractor executed Deeds of Assignment with its suppliers enabling said suppliers to collect directly from PNCC. The Deeds of Assignment did not indicate whether the amount assigned are gross or net of one percent (1%) withholding tax. As such, the corresponding taxes were withheld directly from the subcontractor's collectible. Our subcontractor now claims that the one percent (1%) withholding tax was erroneously imposed on them. It argued that PNCC should have instead deducted/imposed it on the suppliers to whom it assigned the balance collectible with PNCC by way of Deeds of Assignment duly notarized and signed by said contractor and their suppliers. PNCC, on the other hand, is not a party nor a signatory to the said Deeds of Assignment because PNCC does business only with our subcontractor." In reply, please be informed that since PNCC is a government-owned or controlled corporation, the applicable provision is Section 2.57.2(N) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, 12-2001 and 17-2003 implementing Section 57 of the 1997 Tax Code. The said provision imposes a 1% (now 2%) withholding tax on income payments, except any single purchase which is PhP10,000.00 and below, which are made by a government office, national or local, including barangays, or their attached agencies or bodies, and government-owned or controlled corporations, on their purchases of goods and purchases of services from local/resident suppliers. cHSIAC In assignment of rights, the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the rights assigned pertain. Accordingly, the 1% (now 2%) withholding tax may be collected by PNCC from the suppliers of goods and services as assignees of the subcontractor by virtue of the Deeds of Assignment. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group